Traditional card transaction practices include authorization, clearing, settlement and funding actions to complete card transactions between several entities such as the cardholder, merchant, acquirer, issuer, and card network. Card transactions include payments made using different types of payment cards such as a credit card, debit card, gift card, etc. The authorization action includes a cardholder presenting a card as payment to the merchant and the merchant submitting the transaction to the acquirer. The acquirer verifies the card holder has available funds for settlement by passing at least the card number, the transaction type and the amount to the card network and obtains a transaction authorization. Settlement or clearing of the transactions is typically done by the merchant once per day and in a batch containing all the day's transaction. The settlement is passed to the merchant acquirer. The merchant acquirer subsequently settles the transactions further with the appropriate card network such as VISA®, MasterCard® or American Express®, NYCE® etc. Almost all transactions incur an interchange fee that the card network designates per published rates. Interchange fees are collected by the card networks from merchants either on daily or monthly basis. Card networks then remit these interchange fee to the card issuing banks. Depending on the card type, transaction type and the merchant type among other factors different interchange fees may be assessed by the card network for the same purchase transaction. For example, the card network may charge the merchant an interchange fee of 1.85% of the sale price plus $0.10 for a typical credit card rendered, whereas the same merchant may be assessed an interchange fee of 2.4% of sale price plus $0.10 for a reward credit card for the purchase of the same good, payment method (i.e. online) and using the same card network (i.e. VISA®).
Further, the same merchant may be charged an even higher rate for a business card issued on the same card network and by the same card issuer for exactly the same transaction. Alternatively, a reward card might be charged a higher interchange fee than a non-reward card on the same network. Debit cards participating in more than one network e.g. STAR® and MasterCard® may be assessed a different interchange fee depending on the network used by the merchant. Therefore, merchants have an incentive to find the least expensive method to process card transactions (i.e. process card transactions through the lowest cost network) to reduce card processing costs; costs that may add up to millions of dollars a year.